‘A gateway to opportunity’ — why fairer access to credit helps everyone
We caught up with two of the Aire team leading our effort in the US to get their take on credit and the opportunities it can provide.
Welcome Daniel and Tom! Firstly, tell us about your roles at Aire.
DB: I’ve been at Aire for almost five years now. As Lead Product Manager, I’m dedicated to our product expansion into the US. Day to day, this means ensuring that our product, Pulse, is correctly positioned to serve US lenders. Right now, that involves transatlantic video calls with US lenders most evenings — usually with my kids avoiding bedtime in the background…
Before Aire, I built a peer-to-peer lender from scratch, which is where I found myself getting to know the founders of Aire. A few steps before that I worked in investment banking where I got to use my PhD in quantitative finance to build complex financial derivatives.
TO: Aire’s first hire based out of Washington DC, I joined the company in March 2020 as US Counsel and Market Lead. I previously spent many years at the CFPB (Consumer Financial Protection Bureau), where I launched and led their supervision of the consumer reporting industry as well as establishing the CFPB’s efforts on AI policy.
Day-to-day at Aire, it’s my role to oversee the legal compliance of our US operations but also to act rather like a swiss army knife, contributing where I can to build out the US business arm of Aire.
What is credit? How do you define it and what does it mean to you?
TO: Putting on my lawyer hat, I suggest we start with the statutory definitions of credit. The Equal Credit Opportunity Act, for example, describes it as: ‘the right granted by a creditor to an applicant to defer payment of a debt,’ or ‘to incur debt and defer its payment.’ In pure commercial terms, credit reflects obtaining something of financial value from a third party in exchange for future payments.
Personally, I think of credit as a way to draw upon expected future wealth to enhance one’s life: whether it’s to buy a house, a car, start a business, or even to manage expenses on a credit card.
Life does not come with a steady drip of costs. We occasionally must pay for big ticket items that we can only afford by spreading that cost over time. Credit enables us to use the variable of time to more effectively manage our expenses.
‘I think of credit as time travel for money.’
DB: In everyday experience ‘credit’ is about owing money to a lender, and perhaps paying interest on it, but more fundamentally I think of credit as time travel for money.
‘Buy now, pay later’ sums this up perfectly and highlights that this transaction is about having access to funds now which you will have to repay in the future. Examples of this concept vary enormously: from payday loans which allow us to move money from the end of the month to today in order to cover an unexpected expense (think the unexpected need to replace the washing machine), through to mortgages which allow you to spend income that you might earn in future decades, on your home today.
When done responsibly, the borrower has a reasonable expectation to actually have that money in the future. Typically that would be through income. But credit becomes unsustainable debt when someone isn’t likely to have that money in the future and they can become trapped in the cycle of trying to service that debt.
Of course there is a cost to moving money through time like this and that is a part of the interest rate. The other big part of the interest rate is to compensate for the risk. This is where Aire comes in by empowering lenders to make these credit judgements with better visibility of the true underlying risk of consumers.
How have you benefited from credit in the past?
TO: Credit enabled me to purchase my house which, like any home, cost several multiples of my family income. If I had to wait until I possessed the cash to purchase my home outright, my kids would have grown up before my family had a chance to move in!
Another powerful example of the value of credit in our lives is the student loan concept. Statistics show that people who get a college degree earn more money: if every student had to pay for college up front, so many would never go to college at all.
DB: Lots of ways! As a student I benefited from student loans from the government, which I was able to pay back over a longer period of time. We’ve also been able to buy a family home thanks to having a mortgage.
Why is fair access to credit so important for consumers?
DB: Credit is a tool that is fundamental to how we live today. It’s how we make bigger purchases on the basis of future income, as well as manage the unexpected issues that arise. Taking this tool away from consumers, or making it prohibitively expensive and dangerous to use, increases the level of inequality that we see globally. Which in turn has negative impacts on everyone.
‘Credit functions as a gateway to opportunity.’
TO: To me, credit functions as a gateway to opportunity. When credit isn’t fair, it’s so much harder for people to leverage the tools that support economic mobility: funds to start a business, get an advanced degree, or even buy a home in the neighborhood we want to live in. And this then means we all lose out — because there are consumers who may have great inventions, brilliant ideas for businesses, that simply can’t bring their ideas to life. And frankly, fair access to credit is good business, because it means that legitimate borrowers are not being shut out of the system.
How can a business like Aire help US consumers?
TO: From my viewpoint as a former financial regulator, I can tell you that Aire brings several absolutely critical pieces to the table for US lenders — the need for which has been only accelerated by the impact of Covid-19 and the more obvious gaps now left behind by traditional credit scoring practices.
Firstly, Aire empowers consumers to share the facts of their current financial situation (income, expenses, job status) directly with lenders in their own words and in near real-time. Because we directly connect consumers to lenders, consumers no longer have to worry about a third-party misreporting their information or supplying information that is months out of date.
Aire also opens doors for consumers previously blocked from mainstream credit. Our technology allows any consumer to share information about their credit eligibility with a lender. For the 45 million consumers in the US who have no credit file information or too little information to get a credit score, we give them a path to engage with lenders to ultimately deliver credit where it’s due.
Daniel and Tom — thank you.
Pulse from Aire is built to deliver US lenders with rapid, actionable insight on the existing financial situation of their customers.
